The formula to calculate the Bond Equivalent Yield (BEY) is:
\[ \text{BEY} = \left( \frac{\text{Face Value} - \text{Bond Price}}{\text{Bond Price}} \right) \times \left( \frac{365}{\text{Days to Maturity}} \right) \]
Bond Equivalent Yield (BEY) measures the annualized return of a bond based on its current market price, face value, and the number of days to maturity. It helps investors compare bonds with different maturities and coupon frequencies on an equivalent basis.
Let's assume the following for Bond A:
Step 1: Determine the bond price:
The bond price is given as $980.
Step 2: Determine the face value of the bond:
The face value of the bond is given as $1,000.
Step 3: Determine the bond's number of days to maturity:
The days to maturity is given as 300 days.
Step 4: Calculate the BEY using the bond equivalent yield formula:
\[ \text{BEY} = \left( \frac{1,000 - 980}{980} \right) \times \left( \frac{365}{300} \right) = 0.0204 \times 1.2167 \approx 2.48\% \]
Therefore, the Bond Equivalent Yield (BEY) for Bond A is approximately 2.48%.
